2015 (11) TMI 287 - HC - Income Tax

Court upholds 'on money' receipt, disallows expenditure, and upholds income from scrap sale

M/s Harish Textile Engrs. Ltd., Mumbai Versus Dy. Commissioner of Income Tax, Special Range-19

The Court upheld the addition of Rs. 10,00,000 as 'on money' receipt for the period 1986-1989 based on evidence and the appellant's admission. The ... Addition 'on money' receipt - Held that:- The finding reached by officers of the Tribunal is essentially a finding of fact. There was evidence available on record indicating receipt of 'on money' particularly for the period 1989 to 1996. This evidence of receipt of 'on money' with regard to the sale of Stenter machines is found in the appellant's letter dated 25 July 1998 is an admission of receipt 'on money' for sale for Stenter Machine in Surat Market during the period 1986-1989. Therefore, it could not be said that there was no evidence on record for the authorities to come to a conclusion that 'on money' was received by the appellant so as to hold that the finding is perverse.On the aforesaid factual scenario, the majority view taken by the Tribunal, that the addition of ₹ 10 lakhs as receipt of 'on money' for the period 1986 to 1989 in the circumstances of the case on appraisal of the facts before them is a plausible view. This view has not been shown to be arbitrary or perverse. - Decided against assessee. Claim of the expenses made in cash disallowed - Held that:- In the present facts, we find that the documents found during the course of the search are inchoate. It does not indicate the person to whom the payment has been made, the address of the recipient, the person by whom the payment is made and the documents itself indicates that it is prepared for either seeking of funds or reimbursement of funds. Therefore even if the presumption is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made in cash so as to claim the expenditure. Thus no purpose would be served in remanding the issue to the Tribunal. Further Section 292 of the Act provides that where any documents are found in possession or control of any person in the course of search under Section 132 of the Act, then it may be presumed in any proceedings under this Act that the contents of such documents are true and correct. It will be noted that the section uses the word 'may presume' and not 'shall presume' or 'conclusively presume'. The words 'may presume' are in the nature of discretionary presumption different from a compulsory presumption. Therefore this presumption has to be invoked by the authorities passing an order under the Act particularly when the invocation of such presumption is discretionary on the authorities. During the course of the assessment proceedings, the appellant-assessee sought to explain the fact that these expenses on which the deduction is claimed had in fact been incurred. This was in response to the show cause notice issued to the appellant. Thereafter Explanation offered by the appellant was not found satisfactory on the basis of the evidence available before the authorities and the Tribunal. In this view of the matter, the amendment to Section 292C of the Act even though with retrospective effect would not bring about any material change in the conclusion arrived at upon the existing facts.The finding of facts recorded by the authorities under the Act on the issue of payment not being made is a possible view. The same is not shown to be perverse on arbitrary. - Decided against assessee. Consideration received on sale of scrap - Held that:- the conclusion reached by the majority members of the Tribunal that there was in fact sale of scrap is a possible view. This is particularly so as in normal course of human conduct any purchase of raw material even scrap would be shown in regular books of accounts as the same would be entitled to deduction so as to reduce the taxable profit. No person carrying on business would in the usual course of its activity, deny itself the benefit of any deduction available to it in determining the taxable profit. Further the reasoning of the authorities that there is a sale of scrap viz. that one normally does not manufacture final products out of scrap, but scrap is certainly generated during the course of manufacturing final products, cannot be faulted. The appellant-assessee was manufacturing Stenter machines and in the normal course there would have been scrap generated in the manufacturing Stenter machines. It is the scrap which is likely to be sold in the open market for the consideration received by the appellant. Moreover, the appellant has not produced any evidence before the authorities to indicate who the suppliers of the scrap was or filed their evidence to indicate that they had sold scrap to the appellant. In these circumstances, the finding of facts arrived at by the majority members of the Tribunal upholding the order of the Assessing Officer is a plausible view. The same cannot be said to be perverse and/or arbitrary - Decided against assessee. Issues Involved:1. Addition of Rs. 10,00,000 as 'on money' receipt for the period 1986-1989.2. Tribunal's error in not allowing any deduction out of the expenditure of Rs. 1,82,38,330.3. Tribunal's conclusion that the loose papers represented receipt of Rs. 8,78,085 from the sale of scrap.Issue-wise Detailed Analysis:1. Addition of Rs. 10,00,000 as 'on money' receipt for the period 1986-1989:- The appellant challenged the addition of Rs. 10,00,000 as 'on money' receipt, arguing that there was no incriminating evidence found during the search for the period 1986-1989.- The Assessing Officer had determined 'on money' receipts of Rs. 4.10 crores, with Rs. 40.37 lakhs attributed to the period 1986-1989.- The appellant admitted to 'on money' receipts for the period 1989-1996 but denied such receipts for 1986-1989.- The Tribunal upheld the addition of Rs. 10,00,000 based on the appellant's admission of receiving some cash payments during 1986-1989.- The Court found that the Tribunal's conclusion was based on evidence and the appellant's own admission, making the addition of Rs. 10,00,000 plausible and not perverse.2. Tribunal's error in not allowing any deduction out of the expenditure of Rs. 1,82,38,330:- The appellant claimed an expenditure of Rs. 1.82 crores, which was disallowed by the Assessing Officer and upheld by the Tribunal.- The expenditure was categorized into gifts, speed money, protection money, and overtime payments.- The Tribunal, including the third member, found that the appellant failed to substantiate the expenditure with concrete evidence.- The Tribunal also considered the applicability of Explanation to Section 37(1) of the Act, which disallows expenditure that is an offense or prohibited by law.- The Court upheld the Tribunal's finding that the appellant did not prove the expenditure was incurred for business purposes, and the disallowance was not arbitrary or perverse.3. Tribunal's conclusion that the loose papers represented receipt of Rs. 8,78,085 from the sale of scrap:- The Assessing Officer added Rs. 8.78 lakhs as income from undisclosed sources based on loose papers indicating receipts from the sale of scrap.- The appellant argued that the loose papers reflected purchases of scrap, not sales.- The Tribunal, by majority view, upheld the addition, concluding that the papers indicated sales of scrap generated during manufacturing.- The Court found the Tribunal's view plausible, noting that in normal business conduct, purchases would be recorded for tax deductions, and the appellant failed to provide evidence of scrap suppliers.Conclusion:- All questions were answered in favor of the revenue and against the appellant.- The appeal was dismissed with no order as to costs.